Quarterly Report

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2010

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 001-32331

ALPHA NATURAL RESOURCES, INC.

(Exact name of registrant as specified in its charter)

Delaware		42-1638663
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

One Alpha Place, P.O. Box 2345, Abingdon, Virginia		24212
(Address of principal executive offices)		(Zip Code)

Registrant's telephone number, including area code:

(276) 619-4410

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). þ Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

þ Large accelerated filer o Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes þ No

Number of shares of the registrant’s Common Stock, $0.01 par value, outstanding as of May 4, 2010 – 121,067,302

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements
	Condensed Consolidated Statements of Operations (Unaudited)	2
	Condensed Consolidated Balance Sheets (Unaudited)	3
	Condensed Consolidated Statements of Cash Flows (Unaudited)	4
	Notes to Condensed Consolidated Financial Statements (Unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	51
Item 4.	Controls and Procedures	52

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	53
Item 1A.	Risk Factors	53
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	54
Item 6.	Exhibits	55

Table of Contents

Item 1. Financial Statements

ALPHA NATURAL RESOURCES INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(Dollars in thousands, except per share data)


	Three Months Ended
	March 31,
	2010			2009
Revenues:
Coal revenues	$	831,266		$	425,803
Freight and handling revenues		64,788			46,054
Other revenues		25,950			14,102
Total revenues		922,004			485,959
Costs and expenses:
Cost of coal sales (exclusive of items shown separately below)		575,067			303,025
Freight and handling costs		64,788			46,054
Other expenses		15,684			10,849
Depreciation, depletion and amortization		95,127			40,205
Amortization of acquired coal supply agreements, net		65,957			-
Selling, general and administrative expenses (exclusive of depreciation, depletion and amortization shown separately above)		47,789			16,466
Total costs and expenses		864,412			416,599
Income from operations		57,592			69,360
Other income (expense):
Interest expense		(22,120	)		(9,853	)
Interest income		680			625
Miscellaneous income (expense), net		(204	)		116
Total other expense, net		(21,644	)		(9,112	)
Income from continuing operations before income taxes		35,948			60,248
Income tax expense		(21,278	)		(13,627	)
Income from continuing operations		14,670			46,621
Discontinued operations:
Loss from discontinued operations before income taxes		(1,047	)		(7,251	)
Income tax benefit		418			1,594
Loss from discontinued operations		(629	)		(5,657	)
Net income	$	14,041		$	40,964

Basic earnings per common share:
Income from continuing operations	$	0.12		$	0.67
Loss from discontinued operations		-			(0.08	)
Net income	$	0.12		$	0.59

Diluted earnings per common share:
Income from continuing operations	$	0.12		$	0.66
Loss from discontinued operations		-			(0.08	)
Net income	$	0.12		$	0.58

Weighted average shares-basic		119,892,529			69,884,930
Weighted average shares-diluted		121,876,328			70,696,455

See accompanying Notes to Condensed Consolidated Financial Statements.

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ALPHA NATURAL RESOURCES INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Dollars in thousands, except share and per share data)


	March 31,			December 31,
	2010			2009
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	493,835		$	465,869
Trade accounts receivable, net		307,381			232,631
Inventories, net		206,604			176,372
Prepaid expenses and other current assets		194,069			176,953
Total current assets		1,201,889			1,051,825
Property, equipment and mine development costs, net		1,077,198			1,082,446
Owned and leased mineral rights, net		1,955,790			1,985,855
Owned lands		92,132			91,262
Goodwill		357,868			357,868
Acquired coal supply agreements, net		328,700			396,491
Other non-current assets		147,320			157,024
Total assets	$	5,160,897		$	5,122,771
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt	$	33,500		$	33,500
Trade accounts payable		151,236			143,400
Accrued expenses and other current liabilities		246,632			258,293
Total current liabilities		431,368			435,193
Long-term debt		751,637			756,753
Pension and postretirement medical benefit obligations		690,159			682,991
Asset retirement obligations		194,835			190,724
Deferred income taxes		322,798			316,464
Other non-current liabilities		162,900			149,357
Total liabilities		2,553,697			2,531,482

Commitments and Contingencies (Note 13)

Stockholders' equity
Preferred stock - par value $0.01, 10.0 million shares authorized, none issued		-			-
Common stock - par value $0.01, 200.0 million shares authorized, 121.6 million issued and 121.0 million outstanding at March 31, 2010 and 120.8 million issued and 120.5 million outstanding at December 31, 2009		1,216			1,208
Additional paid-in capital		2,212,856			2,194,305
Accumulated other comprehensive income		4,799			5,812
Treasury stock, at cost: 0.6 million and 0.3 million shares at March 31, 2010 and December 31, 2009, respectively		(24,550	)		(8,874	)
Retained earnings		412,879			398,838
Total stockholders' equity		2,607,200			2,591,289
Total liabilities and stockholders' equity	$	5,160,897		$	5,122,771

See accompanying Notes to Condensed Consolidated Financial Statements.

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ALPHA NATURAL RESOURCES INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollars in thousands)


	Three Months Ended
	March 31,
	2010			2009
Operating activities:
Net income	$	14,041		$	40,964
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion, accretion and amortization		104,538			46,066
Amortization of acquired coal supply agreements, net		65,957			-
Mark-to-market adjustments for derivatives		885			(238	)
Stock-based compensation		8,706			3,225
Employee benefit plans, net		15,437			2,141
Deferred income taxes		(6,853	)		3,791
Other, net		(321	)		110
Changes in operating assets and liabilities:
Trade accounts receivable, net		(74,750	)		1,466
Notes and other receivables		11,859			671
Inventories, net		(30,232	)		(18,777	)
Prepaid expenses and other current assets		21,481			(3,187	)
Other non-current assets		3,346			2,822
Trade accounts payable		8,389			(10,576	)
Accrued expenses and other current liabilities		935			(24,692	)
Pension and postretirement medical benefit obligations		(6,773	)		149
Asset retirement obligations		(1,063	)		(802	)
Other non-current liabilities		7,668			617
Net cash provided by operating activities		143,250			43,750

Investing activities:
Capital expenditures		(60,879	)		(18,136	)
Purchase of acquired company		-			(1,750	)
Purchases of marketable securities		(50,560	)		-
Sales of marketable securities		12,320			-
Purchase of equity-method investment		(3,000	)		-
Other, net		819			124
Net cash used in investing activities		(101,300	)		(19,762	)

Financing activities:
Principal repayments of note payable		-			(5,416	)
Principal repayments on long-term debt		(8,375	)		(54	)
Proceeds from exercise of stock options		3,332			-
Excess tax benefit from stock-based awards		6,735			-
Common stock repurchases		(15,676	)		(2,022	)
Net cash used in financing activities		(13,984	)		(7,492	)
Net increase in cash and cash equivalents		27,966			16,496
Cash and cash equivalents at beginning of period		465,869			676,190
Cash and cash equivalents at end of period	$	493,835		$	692,686

Supplemental cash flow information:
Cash paid for interest	$	16,234		$	6,579
Cash paid for income taxes	$	-		$	13,630

See accompanying Notes to Condensed Consolidated Financial Statements.

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ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, dollars in thousands)

(1) Business and Basis of Presentation

Business

Alpha Natural Resources, Inc. and its consolidated subsidiaries (the “Company” or “Alpha”) are primarily engaged in the business of extracting, processing and marketing steam and metallurgical coal from surface and deep mines, and mainly sell to electric utilities, steel and coke producers, and industrial customers. The Company, through its subsidiaries, is also involved in marketing coal produced by others to supplement its own production and, through blending, provides its customers with coal qualities beyond those available from its own production.

On July 31, 2009, Alpha Natural Resources, Inc. (“Old Alpha”) and Foundation Coal Holdings, Inc. (“Foundation”) merged (the “Merger”) with Foundation continuing as the surviving legal corporation of the Merger. Subsequent to the Merger, Foundation was renamed Alpha Natural Resources, Inc. For financial accounting purposes, the Merger was treated as a reverse acquisition and Old Alpha was treated as the accounting acquirer. As a result, Foundation’s financial results are not included in the three months ended March 31, 2009.

Basis of Presentation

The accompanying interim condensed consolidated financial statements of the Company are unaudited and prepared in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for Form 10-Q. Such rules and regulations allow the omission of certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America as long as the statements are not misleading. In the opinion of management, these interim condensed consolidated financial statements reflect all normal and recurring adjustments necessary for a fair presentation of the results for the periods presented. Results of operations for the three months ended March 31, 2010 are not necessarily indicative of the results to be expected for the year ending December 31, 2010. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company included in its Annual Report on Form 10-K for the twelve months ended December 31, 2009, filed March 1, 2010 and included on Form 8-K filed on March 15, 2010.

The Company’s condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of the Company’s condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include inventories; mineral reserves; allowance for non-recoupable advanced mining royalties; asset impairments; environmental and reclamation obligations; acquisition accounting; pensions, postemployment, postretirement medical and other employee benefit obligations; useful lives for depreciation, depletion, and amortization; reserves for workers’ compensation and black lung claims; current and deferred income taxes; reserves for contingencies and litigation; revenue recognized using the percentage of completion method; and fair value of financial instruments. Estimates are based on facts and circumstances believed to be reasonable at the time; however, actual results could differ from those estimates.

Reclassifications

Prior period Coal revenues , Other revenues and Other expenses have been adjusted due to the reclassification of mark-to-market gains and losses on derivative swap and option agreements; forward coal sale and purchase contracts that are accounted for as derivatives; and financial settlements of coal contracts. Mark-to-market gains and losses for all derivative instruments were previously reported in (Increase) Decrease in fair value of derivative instruments, net in the Condensed Consolidated Statements of Operations for the three months ended March 31, 2009. Mark-to-market gains and losses on commodity swap and diesel fuel option agreements are reported in Other expenses and mark-to-market gains and losses on forward coal sale and purchase contracts and coal option agreements are reported in Other revenues . Contract settlements, which previously were reported in Coal revenues , are reported in Other revenues . As a result of the change in presentation, the following reclassifications have been made in the Condensed Consolidated Statements of Operations for the three months ended March 31, 2009:

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ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, dollars in thousands)

(Continued)

	Three Months Ended March, 31 2009
	Previously reported			As Reported
Coal revenues	$	424,416		$	425,803
Other revenues	$	16,265		$	14,102
Other expenses	$	11,863		$	10,849
(Increase) decrease in fair value of derivative instruments, net	$	(238	)	$	-

(2) New Accounting Pronouncements

New Accounting Pronouncements Adopted

In June 2009, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 167, Amendments to FASB Interpretation No. 46(R) , which modifies how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The guidance clarifies that the determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impacts the entity’s economic performance. The guidance requires an ongoing reassessment of whether a company is the primary beneficiary of a variable interest entity. It also requires additional disclosures about a company’s involvement in variable interest entities and any significant changes in risk exposure due to that involvement. In December 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-17 (“ASU 2009-17”), which codified the guidance of Statement 167. The Company adopted the guidance on January 1, 2010. As of March 31, 2010, the Company did not have material interests in any variable interest entity.

In January 2010, the FASB issued ASU 2010-6, Improving Disclosures About Fair Value Measurements (“ASU 2010-6”), which requires reporting entities to make new disclosures about recurring or nonrecurring fair-value measurements including significant transfers into and out of Level 1 and Level 2 fair-value measurements and information on purchases, sales, issuances, and settlements on a gross basis in the reconciliation of Level 3 fair- value measurements. ASU 2010-6 is effective for annual reporting periods beginning after December 15, 2009, except for Level 3 reconciliation disclosures which are effective for annual periods beginning after December 15, 2010. ASU 2010-6 relates solely to disclosures in the financial statement notes and will not have an effect on the Company’s financial position or results of operations. See Note 8 regarding the Company’s fair value disclosures.

(3) Earnings Per Share

The number of shares used to calculate basic earnings per common share is based on the weighted average number of the Company’s outstanding common shares during the respective periods. The number of shares used to calculate diluted earnings per common share is based on the number of common shares used to calculate basic earnings per share plus the dilutive effect of stock options and other stock-based instruments held by the Company’s employees and directors during each period and the Company’s outstanding 2.375% convertible senior notes due 2015 (“the Convertible Notes”) when these are convertible into the Company’s common stock. The Convertible Notes, which were issued in April 2008, become dilutive for earnings per common share calculations when the average share price for the quarter exceeds the conversion price of $54.66. The shares that would be issued to settle the conversion spread are included in the diluted earnings per common share calculation when the conversion option is in the money. For the three months ended March 31, 2010 and 2009, the conversion option for the Convertible Notes was not in the money, and therefore there was no dilutive earnings per common share impact.

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ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, dollars in thousands)

(Continued)

The following table provides a reconciliation of the weighted-average shares outstanding used in the basic and diluted earnings per share computations for the periods presented:

	Three Months Ended
	March 31,
	2010		2009


Weighted average shares - basic		119,892,529		69,884,930
Dilutive impact of stock options and restricted stock plans		1,983,799		811,525
Weighted average shares - diluted		121,876,328		70,696,455

(4) Inventories, net

Inventories, net consisted of the following:

	March 31,		December 31,
	2010		2009
Raw coal	$	23,447	$	19,180
Saleable coal		137,160		112,004
Equipment purchased for resale		1,910		1,489
Materials and supplies, net		44,087		43,699
Total inventories, net	$	206,604	$	176,372

(5) Marketable Securities

Short-term marketable securities, included in Prepaid expenses and other current assets, consisted of the following:

	March 31, 2010

			Unrealized
	Cost		Gain		Loss			Fair Value
Short-term marketable securities:
US treasury and agency securities	$	40,908	$	2	$	(7	)	$	40,903
Corporate debt securities		34,376		7		-			34,383
Total short-term marketable securities:	$	75,284	$	9	$	(7	)	$	75,286

	December 31, 2009

			Unrealized
	Cost		Gain		Loss			Fair Value
Short-term marketable securities:
US treasury and agency securities	$	22,338	$	-	$	(15	)	$	22,323
Corporate debt securities		7,180		-		(2	)		7,178
Total short-term marketable securities:	$	29,518	$	-	$	(17	)	$	29,501

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ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, dollars in thousands)

(Continued)

Long-term marketable securities, with maturity dates between one and two years, included in Other non-current assets, consisted of the following:

	March 31, 2010

			Unrealized
	Cost		Gain		Loss			Fair Value
Long-term marketable securities:
US treasury and agency securities	$	82,199	$	-	$	(96	)	$	82,103

	December 31, 2009

			Unrealized
	Cost		Gain		Loss			Fair Value
Long-term marketable securities:
US treasury and agency securities	$	89,828	$	-	$	(343	)	$	89,485

(6) Long-Term Debt

Long-term debt consisted of the following:

	March 31,			December 31,
	2010			2009
Term loan due 2011	$	276,375		$	284,750
7.25% senior notes due 2014		298,285			298,285
2.375% convertible senior notes due 2015		287,500			287,500
Debt discount		(77,023	)		(80,282	)
Total long-term debt		785,137			790,253
Less current portion		33,500			33,500
Long-term debt, net of current portion	$	751,637		$	756,753

Alpha Credit Facility

The Company has a credit facility consisting of a $650,000 secured revolving credit line and a $335,000 secured term loan due 2011 (the “Alpha Credit Facility”). As of March 31, 2010, letters of credit in the amount of $93,633 were outstanding under the revolving credit line, and the Company’s term loans due 2011 had a carrying value of $274,690, net of debt discount of $1,685, with $33,500 classified as current portion of long-term debt.

On April 15, 2010, the Company and its lenders amended and restated the Alpha Credit Facility (the “Amend and Extend”). The Amend and Extend, among other things, extends the maturity of $236,800 of the then outstanding term loans and $554,000 of existing revolving credit facility commitments from July 7, 2011 to July 31, 2014. The Amend and Extend added $300,400 of additional revolving credit facility borrowing capacity with a maturity of July 31, 2014, to increase the aggregate principal amount available to be drawn under the revolving credit facility at the close of the Amend and Extend to $950,400, of which $96,000 was not extended and will mature on July 7, 2011. Additionally, the Amend and Extend increases the amount of the “accordion” feature of the Alpha Credit Facility to $400,000, all of which will be available for the Company to exercise following the closing of the Amend and Extend. Furthermore, the Amend and Extend makes other changes to the Alpha Credit Facility, including increases to certain baskets under the negative covenants to provide the Company greater financial and operating flexibility.

Accounts Receivable Securitization

As of March 31, 2010, letters of credit in the amount $143,474 were outstanding under the A/R Facility and no cash borrowing transactions had taken place. As outstanding letters of credit exceeded borrowing capacity as of March 31, 2010, the Company was required to provide additional collateral in the form of $35 of restricted cash, which is included in Prepaid expenses and other current assets , to secure outstanding letters of credit.

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ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, dollars in thousands)

(Continued)

(7) Asset Retirement Obligations

As of March 31, 2010 and December 31, 2009, the Company had recorded asset retirement obligation accruals for mine reclamation and closure costs (including perpetual water treatment) totaling $208,816 and $205,632, respectively. The portion of the costs expected to be paid within a year of $13,981 and $14,908, as of March 31, 2010 and December 31, 2009, respectively, is included in Accrued expenses and other current liabilities . There were no assets that were legally restricted for purposes of settling asset retirement obligations at March 31, 2010 or December 31, 2009. These regulatory obligations are secured by surety bonds.

Changes in the asset retirement obligations were as follows:

Total asset retirement obligations at December 31, 2009	$	205,632
Accretion for the period		4,357
Revisions in estimated cash flows		53
Expenditures for the period		(1,226	)
Total asset retirement obligations at March 31, 2010	$	208,816
Less current portion		13,981
Long-term portion	$	194,835

(8) Fair Value of Financial Instruments and Fair Value Measurements

The estimated fair values of financial instruments are determined based on relevant market information. These estimates involve uncertainty and cannot be determined with precision. The following methods and assumptions are used to estimate the fair value of each class of financial instruments.

The carrying amounts for Cash and cash equivalents, Trade accounts receivable, net, Prepaid expenses and other current assets, Trade accounts payable, Accrued expenses and other current liabilities approximate fair value due to the short maturity of these instruments.

Long-term Debt: The fair value of the Convertible Notes was estimated using observable market prices as these securities are traded. The fair value of the 2014 Notes and the term loan due 2011 is estimated based on a current market rate of interest offered to the Company for debt of similar maturities.

The estimated fair values of long-term debt were as follows:

	March 31, 2010				December 31, 2009
	Carrying				Carrying
	Amount		Fair Value		Amount		Fair Value
Term loan due 2011 (1)	$	274,690	$	270,848	$	282,739	$	279,055
7.25% senior notes due 2014 (2)		297,060		304,996		296,990		302,014
2.375% convertible senior notes due 2015 (3)		213,387		336,964		210,524		325,953
Total long-term debt	$	785,137	$	912,808	$	790,253	$	907,022

(1)	Net of debt discount of $1,685 and $2,011 as of March 31, 2010 and December 31, 2009, respectively.

(2)	Net of debt discount of $1,225 and $1,295 as of March 31, 2010 and December 31, 2009, respectively.

(3)	Net of debt discount of $74,113 and $76,976 as of March 31, 2010 and December 31, 2009, respectively.

ASC 820 requires disclosures about how fair value is determined for assets and liabilities and a hierarchy for which these assets and liabilities must be grouped, based on significant levels of inputs as follows:

Level 1 – Quoted prices in active markets for identical assets or liabilities;

Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and

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ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, dollars in thousands)

(Continued)

Level 3 – Unobservable inputs in which there is little or no market data which require the reporting entity to develop its own assumptions.

The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements).

The following tables set forth by level, within the fair value hierarchy, the Company’s financial and non-financial assets and liabilities that were accounted for at fair value on a recurring and non-recurring basis as of March 31, 2010 and December 31, 2009, respectively. As required by ASC 820, financial and non-financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.

	March 31, 2010
				Quoted Prices		Significant Other			Significant
				in Active		Observable			Unobservable
	Total Fair			Markets		Inputs			Inputs
	Value			(Level 1)		(Level 2)			(Level 3)
Financial assets (liabilities):
U.S. treasury and agency securities	$	123,006		$	123,006	$	-		$	-
Corporate debt securities	$	34,383		$	34,383	$	-		$	-
Forward coal sales	$	2,166		$	-	$	2,166		$	-
Forward coal purchases	$	(511	)	$	-	$	(511	)	$	-
Commodity swaps	$	(2,088	)	$	-	$	(2,088	)	$	-
Commodity options	$	(946	)	$	-	$	(946	)	$	-
Interest rate swaps	$	(25,179	)	$	-	$	(25,179	)	$	-

	December 31, 2009
				Quoted Prices		Significant Other			Significant
				in Active		Observable			Unobservable
	Total Fair			Markets		Inputs			Inputs
	Value			(Level 1)		(Level 2)			(Level 3)
Financial assets (liabilities):
U.S. treasury and agency securities	$	111,808		$	111,808	$	-		$	-
Corporate debt securities	$	7,178		$	7,178	$	-		$	-
Forward coal sales	$	3,414		$	-	$	3,414		$	-
Forward coal purchases	$	(2,861	)	$	-	$	(2,861	)	$	-
Commodity swaps	$	(8,691	)	$	-	$	(8,691	)	$	-
Commodity options	$	(255	)	$	-	$	(255	)	$	-
Interest rate swaps	$	(24,232	)	$	-	$	(24,232	)	$	-

The following methods and assumptions were used to estimate the fair values of the assets and liabilities in the tables above.

Level 1 Fair Value Measurements

U.S. Treasury and Agency Securities and Corporate Debt Securities: The fair value of marketable securities is based on observable market data.

Level 2 Fair Value Measurements

Forward Coal Purchases and Sales – The fair values of the forward coal purchase and sale contracts were estimated using discounted cash flow calculations based upon actual contract prices and forward commodity price curves. The curves were obtained from independent pricing services reflecting broker market quotes. The fair values are adjusted for counter party risk, when applicable.

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(Unaudited, dollars in thousands)

(Continued)

Commodity Swaps – Since the Company’s commodity swaps are not traded on a market exchange, the fair values are determined using valuation models which include assumptions about commodity prices based on those observed in the underlying markets.

Coal Options – The fair values of the coal options were estimated using discounted cash flow calculations based upon forward commodity price curves. The curves were obtained from independent pricing services reflecting broker market quotes.

Interest Rate Swaps – The fair values of the interest rate swaps were estimated using discounted cash flow calculations based upon forward interest-rate yield curves. The curves were obtained from independent pricing services reflecting broker market quotes.

(9) Derivative Financial Instruments

Forward Contracts

The Company manages price risk for coal sales and purchases through the use of coal supply agreements. The Company evaluates each of its coal sales and coal purchase forward contracts to determine whether they meet the definition of a derivative and if so, whether they qualify for the normal purchase normal sale (“NPNS”) exception prescribed by ASC 815-10-10. The majority of the Company’s forward contracts do not qualify as derivatives. The majority of contracts that do qualify as derivatives also qualify for the NPNS exception based on management’s intent and ability to physically deliver or take physical delivery of the coal. Contracts that qualify as derivatives and do not qualify for the NPNS exception are accounted for at fair value and accordingly, the Company includes the unrealized gains and losses in current period earnings or losses.

Swap Agreements

Commodity Swaps

The Company uses diesel fuel and explosives in its production process and incurs significant expenses for the purchase of these commodities. Diesel fuel and explosives expenses represented approximately 7% of cost of coal sales for the three months ended March 31, 2010. The Company is subject to the risk of price volatility for these commodities and as a part of its risk management strategy, the Company enters into swap agreements with financial institutions to mitigate the risk of price volatility for both diesel fuel and explosives. The terms of the swap agreements allow the Company to pay a fixed price and receive a floating price, which provides a fixed price per unit for the volume of purchases being hedged. As of March 31, 2010, the Company had swap agreements outstanding to hedge the variable cash flows related to 70% and 49% of anticipated diesel fuel usage for calendar year 2010 and 2011, respectively. The average fixed price per swap for diesel fuel hedges is $2.33 per gallon and $2.39 per gallon for calendar year 2010 and 2011, respectively. As of March 31, 2010, the Company had swap agreements outstanding to hedge the variable cash flows related to approximately 74% of anticipated explosives usage in the Powder River Basin for calendar year 2010. All cash flows associated with derivative instruments are classified as operating cash flows in the Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2010 and 2009.

The Company sells coalbed methane through its Coal Gas Recovery business. The revenues derived from the sale of coalbed methane are subject to volatility based on the changes in natural gas prices. In order to reduce that risk, the Company enters into “pay variable, receive fixed” natural gas swaps for a portion of its anticipated gas production in order to fix the selling price for a portion of its production. The natural gas swaps have been designated as qualifying cash flow hedges. As of March 31, 2010, the Company had swap agreements outstanding to hedge the variable cash flows related to approximately 80% of anticipated natural gas production in 2010.

Interest Rate Swap

The Company has variable rate debt outstanding and is subject to interest rate risk based on volatility in underlying interest rates. The Company previously entered into a pay fixed, receive variable interest rate swap to convert the Company’s previous variable-rate term loan into fixed-rate debt. The interest rate swap was designated as a qualifying cash flow hedge. During the year ended December 31, 2009, the Company repaid the related term loan and de-designated the swap as a cash flow hedge. The Company did not terminate the interest rate swap due to the swap’s potential benefit in offsetting a portion of the effect of interest rate changes in the Company’s other variable rate debt. Subsequent changes in fair value are recorded in Interest expense .

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NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, dollars in thousands)

(Continued)

The following tables present the fair values and location of the Company’s derivative instruments within the Condensed Consolidated Balance Sheets:

	Asset Derivatives
Derivatives designated as cash flow hedging instruments	March 31, 2010		December 31, 2009
Commodity swaps (1)	$	9,891	$	2,222

Derivatives not designated as cash flow hedging instruments	March 31, 2010		December 31, 2009
Forward coal sales (2)	$	2,166	$	3,414
Commodity swaps (3)		72		5,066
Total	$	2,238	$	8,480

Total asset derivatives	$	12,129	$	10,702

(1)	As of March 31, 2010, $7,218 is recorded in Prepaid and other current assets and $2,673 is recorded in Other non-current assets in the Condensed Consolidated Balance Sheets.

As of December 31, 2009, $390 is recorded in Prepaid and other current assets and $1,832 is recorded in Other non-current assets in the Condensed Consolidated Balance Sheets.

(2)	As of March 31, 2010, $1,576 is recorded in Prepaid and other current assets and $590 is recorded in Other non-current assets in the Condensed Consolidated Balance Sheets.

As of December 31, 2009, $3,216 is recorded in Prepaid and other current assets and $198 is recorded in Other non-current assets in the Condensed Consolidated Balance Sheets.

(3)	As of March 31, 2010, $72 is recorded in Prepaid and other current assets in the Condensed Consolidated Balance Sheets.

As of December 31, 2009, $4,333 is recorded in Prepaid and other current assets and $733 is recorded in Other non-current assets in the Condensed Consolidated Balance Sheets.

	Liability Derivatives
Derivatives designated as cash flow hedging instruments	March 31, 2010		December 31, 2009
Commodity swaps (1)	$	11,270	$	1,148

Derivatives not designated as cash flow hedging instruments	March 31, 2010		December 31, 2009
Forward coal purchases (2)	$	511	$	2,861
Commodity swaps (3)		781		14,831
Commodity options-coal (4)		946		255
Interest rate swap (5)		25,179		24,232
Total	$	27,417	$	42,179

Total liability derivatives	$	38,687	$	43,327

(1)	As of March 31, 2010, $8,682 is recorded in Accrued expenses and other current liabilities and $2,588 is recorded in Other non-current liabilities in the Condensed Consolidated Balance Sheets.

As of December 31, 2009, $1,148 is recorded in Accrued expenses and other current liabilities in the Condensed Consolidated Balance Sheets.

(2)	As of March 31, 2010 and December 31, 2009, $511 and $2,861 is recorded in Accrued expenses and other current liabilities, respectively, in the Condensed Consolidated Balance Sheets.

(3)	As of March 31, 2010, $781 is recorded in Accrued expenses and other current liabilities in the Condensed Consolidated Balance Sheets.

As of December 31, 2009, $10,833 is recorded in Accrued expenses and other current liabilities and $3,998 in Other non-current liabilities in the Condensed Consolidated Balance Sheets.

(4)	As of March 31, 2010, $63 is recorded in Accrued expenses and other current liabilities and $883 in Other non-current liabilities in the Condensed Consolidated Balance Sheets.

As of December 31, 2009, $119 is recorded in Accrued expenses and other current liabilities and $136 in Other non-current liabilities in the Condensed Consolidated Balance Sheets.

(5)	As of March 31, 2010 and December 31, 2009, $25,179 and $24,232, respectively, is recorded in Other non-current liabilities in the Condensed Consolidated Balance Sheets.

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(Unaudited, dollars in thousands)

(Continued)

The following tables present the gains and losses from derivative instruments for the three months ended March 31, 2010 and 2009 and their location within the Condensed Consolidated Financial Statements:

	Gain (loss) reclassified				Gain (loss) recorded
	from accumulated other				in accumulated other
Derivatives designated as	comprehensive income to earnings				comprehensive income
cash flow hedging instruments	2010		2009		2010		2009
Commodity swaps (2)	$	268	$	-	$	2,252	$	(6	)
Interest rate swap (1)		-		2,408		-		(24	)
	$	268	$	2,408	$	2,252	$	(30	)

(1)	Amounts related to the interest rate swap were recorded as a component of Interest expense in the Condensed Consolidated Statements of Operations for the three months ended March 31, 2010.

(2)	The ineffectiveness recorded for commodity swaps is included in Other Expense in the Condensed Consolidated Statements of Operations for the three months ended March 31, 2010. There was no ineffectiveness recorded for the interest rate swap for the three months ended March 31, 2009.

	Gain (loss)
Derivatives not designated as	recorded in earnings
cash flow hedging instruments	2010			2009
Forward coal sales (1)	$	(1,248	)	$	1,714
Forward coal purchases (1)		2,350			(2,575	)
Commodity swaps (2)		(349	)		1,724
Commodity options-diesel fuel (2)		-			(625	)
Commodity options-coal (1)		(691	)		-
Interest rate swap (3)		(947	)		-
	$	(885	)	$	238

(1)	Amounts are recorded as a component of Other revenues in the Condensed Consolidated Statements of Operations.

(2)	Amounts are recorded as a component of Other expenses in the Condensed Consolidated Statements of Operations.

(3)	Amounts are recorded as a component of Interest expense in the Condensed Consolidated Statements of Operations.

The following table summarizes the changes to Accumulated other comprehensive income (loss) related to hedging activities during the three months ended March 31, 2010 and 2009:

	Three Months Ended
	March 31,
	2010		2009
Balance at beginning of period	$	899	$	(20,961	)
Net change associated with current year hedging transactions		2,252		(24	)
Net amounts reclassified to earnings		268		48
Balance at end of period	$	3,419	$	(20,937	)

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NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, dollars in thousands)

(Continued)

(10) Income Taxes

The total income tax expense (benefit) provided on pretax income was allocated as follows:

	Three Months Ended
	March 31,
	2010			2009
Continuing operations	$	21,278		$	13,627
Discontinued operations		(418	)		(1,594	)
Total	$	20,860		$	12,033

A reconciliation of the statutory federal income tax expense at 35% to income from continuing operations before income taxes and the actual income tax expense from continuing operations is as follows:

	Three Months Ended
	March 31,
	2010			2009
Federal statutory income tax expense	$	12,582		$	21,086
Increases (reductions) in taxes due to:
Percentage depletion allowance		(15,469	)		(7,667	)
State taxes, net of federal tax impact		(210	)		1,490
Deduction for domestic production activities		(1,887	)		(569	)
Change in valuation allowance		-			(839	)
Change in law - Medicare Part D Subsidy		25,566			-
Other, net		696			126
Income tax expense from continuing operations	$	21,278		$	13,627

The Patient Protection and Affordable Care Act (“PPACA”) and the Reconciliation Act were signed into law in March 2010. As a result of these two acts, tax benefits available to employers that receive the Medicare Part D subsidy will be eliminated beginning in years ending after December 31, 2012. Since the acts were signed into law in the current quarter, ASC 740 – Income Taxes, requires that the effect of the tax law change be recorded immediately as a component of tax expense. During the three months ended March 31, 2010, the income tax effect related to the acts was a reduction of $25,566 to the deferred tax asset related to the postretirement prescription drug benefits.

(11) Employee Benefit Plans

The Company sponsors or participates in several benefit plans for its employees, including postemployment health care and life insurance, defined benefit and defined contribution pension plans, and workers’ compensation and black lung benefits. In connection with the Merger, the Company assumed all of the employee benefit plans of Foundation (the “Foundation Plans”) and is contractually obligated to continue to provide similar or improved benefits to those Foundation Plans for a period of eighteen months after the Merger date.

Components of Net Periodic Pension Costs

The components of net periodic benefit costs are as follows:

	Three Months Ended
	March 31,
	2010			2009
Service cost	$	2,074		$	-
Interest cost		3,656			-
Expected return on plan assets		(3,239	)		-
Net periodic benefit cost	$	2,491		$	-

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(Unaudited, dollars in thousands)

(Continued)

Components of Net Periodic Costs of Other Postretirement Benefit Plans and Black Lung

The components of net periodic benefit costs are as follows:

	Three Months Ended
	March 31,
	2010			2009
Service cost	$	3,087		$	694
Interest cost		9,302			855
Expected return on plan assets		(20	)		-
Amortization of prior service cost		550			592
Amortization of net actuarial gain		29			-
Net periodic benefit cost	$	12,948		$	2,141

In March 2010, the PPACA was enacted, potentially impacting the costs to provide healthcare benefits to the Company’s eligible active and certain retired employees and workers’ compensation benefits related to occupational disease resulting from coal workers’ pneumoconiosis (“Black Lung”) . The PPACA has both short-term and long-term implications on healthcare benefit plan standards. Implementation of this legislation is planned to occur in phases, with plan standard changes taking effect beginning in 2010, but to a greater extent with the 2011 benefit plan year and extending through 2018.

Plan standard changes that could affect the Company in the short term include raising the maximum age for covered dependents to receive benefits, the elimination of lifetime dollar limits per covered individual and restrictions on annual dollar limits per covered individual, among other standard requirements. Plan standard changes that could affect the Company in the long term include an excise tax on “high cost” plans and the elimination of annual dollar limits per covered individual, among other standard requirements.

The Company is currently analyzing this legislation to determine the full extent of the impact of the required plan standard changes on employee healthcare plans and the resulting costs. Beginning in 2018, the PPACA will impose a 40% excise tax on employers to the extent that the value of their healthcare plan coverage exceeds certain dollar thresholds. The Company anticipates that certain government agencies will provide additional regulations or interpretations concerning the application of this excise tax. Until these regulations or interpretations are published, it is impractical to reasonably estimate the impact of the excise tax on future healthcare costs or postretirement benefit obligations. Accordingly, as of March 31, 2010, the Company has not made any changes to the assumptions used to determine postretirement benefit obligations. The Company will need to continue to evaluate the impact of the PPACA in future periods as additional information and guidance becomes available.

The PPACA also amended previous legislation related to coal workers’ Black Lung, providing automatic extension of awarded lifetime benefits to surviving spouses and providing changes to the legal criteria used to assess and award claims. The Company evaluated the impact of these changes to its current population of beneficiaries and possible future claimants, and as a result re-measured the obligations for its self insured black lung plans as of March 31, 2010. The re-measurement resulted in an estimated $6,658 increase to the obligation as of March 31, 2010 included in Other non-current liabilities in the accompanying Condensed Consolidated Balance Sheets , with an offset to other comprehensive income.

(12) Stock-Based Compensation Awards

At March 31, 2010, the Company had three types of stock-based awards outstanding: restricted stock, restricted share units (both time-based and performance-based), and stock options. Stock-based compensation expense from continuing operations totaled $8,706 and $3,225, for the three months ended March 31, 2010 and 2009, respectively. For the three months ended March 31, 2010 and 2009, approximately 70% and 72%, respectively, of stock-based compensation expense from continuing operations is reported as Selling, general and administrative expenses and approximately 30% and 28%, respectively, of stock-based compensation expense from continuing operations was recorded as a component of Cost of coal sales .

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(Continued)

During the three months ended March 31, 2010, the Company awarded certain of its executives and key employees 336,529 time-based restricted share units and 265,636 performance-based restricted share units. The time-based share units vest, subject to continued employment, ratably over three-years or cliff vest after three years (with accelerated vesting upon a change of control and certain retirement scenarios). The performance-based share units awarded under the Plans cliff vest after three years, subject to continued employment and the satisfaction of the performance criteria (with accelerated vesting upon a change of control and certain retirement scenarios). The 265,636 performance-based restricted share units awarded during the three months ended March 31, 2010 have the potential to be distributed from 0% to 200% of the awarded amount, depending on the actual results versus the pre-established performance criteria over the three-year period.

On March 30, 2010, the Company filed its Notice of Annual Meeting of Stockholders and Proxy Statement, to be held on May 19, 2010, which includes a proposal to approve the 2010 Long-Term Incentive Plan (the “2010 LTIP”). The principal purpose of the 2010 LTIP is to advance the interests of the Company and its stockholders by providing incentives to certain eligible persons who contribute significantly to the strategic and long-term performance objectives and growth of the Company. The 2010 LTIP provides for a variety of awards, including options, stock appreciation rights, restricted stock, restricted share units (both time-based and performance-based), and any other type of award deemed by the Compensation Committee in its discretion to be consistent with the purposes of the 2010 LTIP.

In November 2008, the Board of Directors authorized the Company to repurchase common shares from employees (upon the election by the employee) to satisfy the employees’ minimum statutory tax withholdings upon the vesting of restricted stock and restricted share units (both time-based and performance-based). Shares that are repurchased to satisfy the employees’ minimum statutory tax withholdings are recorded in Treasury stock at cost, and these shares are not added back into the pool of shares available for grant of the respective plans the shares were granted from. During the three months ended March 31, 2010 and 2009, the Company repurchased 344,250 and 106,739, respectively, of common shares from employees at an average price paid per share of $45.54 and $18.96, respectively. As of March 31, 2010 and December 31, 2009, the Company had repurchased 653,707 and 309,457, respectively, shares of common stock in the amount of $24,550 and $8,874, respectively, which was recorded in Treasury stock in the Condensed Consolidated Balance Sheets.

(13) Commitments and Contingencies

(a) General

Estimated losses from loss contingencies and legal expenses associated with contingencies are accrued by a charge to income when information available indicates that it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. If a loss contingency is not probable or reasonably estimable, disclosure of the loss contingency is made in the consolidated financial statements when it is at least reasonably possible that a loss will be incurred and the loss is material.

(b) Commitments

In connection with the Merger, the Company assumed the obligations for a federal coal lease, which contains an estimated 224.0 million tons of proven and probable coal reserves in the Powder River Basin. The lease bid was $180,500, payable in five equal annual installments of $36,108. The first two installments were paid in 2009 and 2008 by Foundation. The three remaining annual installments of $36,108 each are due on May 1, the anniversary date of the lease in 2010, 2011 and 2012.

Extensive regulation of the impacts of mining on the environment and of maintaining workplace safety, and related litigation, has had or may have a significant effect on the Company’s costs of production and results of operations. Further regulations, legislation or litigation in these areas may also cause the Company’s sales or profitability to decline by increasing costs or by hindering the Company’s ability to continue mining at existing operations or to permit new operations.

(d) Guarantees and Financial Instruments with Off-Balance Sheet Risk

In the normal course of business, the Company is a party to certain guarantees and financial instruments with off-balance sheet risk, such as bank letters of credit, performance or surety bonds, and other guarantees and indemnities related to the obligations of affiliated entities which are not reflected in the Company's Condensed Consolidated Balance Sheets. Management does not expect any material losses to result from these guarantees or other off-balance sheet financial instruments.

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(Unaudited, dollars in thousands)

(Continued)

In connection with the Merger, Neweagle Industries, Inc., Neweagle Coal Sales Corp., Laurel Creek Co., Inc. and Rockspring Development, Inc. (collectively, “Sellers”) became indirect wholly owned subsidiaries of the Company. The Sellers sell coal to Birchwood Power Partners, L.P. (“Birchwood”) under a Coal Supply Agreement dated July 22, 1993 (“Birchwood Contract”). Laurel Creek Co., Inc. and Rockspring Development, Inc. were parties to the Birchwood Contract since its inception, at which time those entities were not affiliated with Neweagle Industries, Inc., Neweagle Coal Sales Corp. or Foundation. Effective January 31, 1994, the Birchwood Contract was assigned to Neweagle Industries, Inc. and Neweagle Coal Sales Corp. by AgipCoal Holding USA, Inc. and AgipCoal Sales USA, Inc., which at the time were affiliates of Arch Coal, Inc. Despite this assignment, Arch Coal, Inc. (“Arch”) and its affiliates have separate contractual obligations to provide coal to Birchwood if Sellers fail to perform. Pursuant to an Agreement & Release dated September 30, 1997, Foundation agreed to defend, indemnify and hold harmless Arch and its subsidiaries from and against any claims arising out of any failure of Sellers to perform under the Birchwood Contract. By acknowledgement dated February 16, 2005, Foundation and Arch acknowledged the continuing validity and effect of this Agreement & Release.

Letters of Credit

The amount of outstanding bank letters of credit issued under the Company’s accounts receivable securitization program as of March 31, 2010 is presented in Note 6. As of March 31, 2010, the Company had $93,633 of additional letters of credit outstanding under its revolving credit facility.

(e) Legal Proceedings

The Company is a party to a number of legal proceedings incident to its normal business activities. While the Company cannot predict the outcome of these proceedings, the Company does not believe that any liability arising from these matters individually or in the aggregate should have a material impact upon its consolidated cash flows, results of operations or financial condition.

Nicewonder Litigation

In December 2004, prior to the Company’s Nicewonder acquisition in October 2005, the Affiliated Construction Trades Foundation brought an action against the West Virginia Department of Transportation, Division of Highways (“WVDOH”) and Nicewonder Contracting, Inc. ("NCI"), which became the Company’s wholly-owned indirect subsidiary as a result of the Nicewonder acquisition, in the United States District Court in the Southern District of West Virginia. The plaintiff sought a declaration that the contract between NCI and the State of West Virginia related to NCI's road construction project was illegal as a violation of applicable West Virginia and federal competitive bidding and prevailing wage laws. The plaintiff also sought an injunction prohibiting performance of the contract but has not sought monetary damages.

In September 2007, the Court ruled that the WVDOH and the Federal Highway Administration (which is now a party to the suit) could not, under the circumstances of this case, enter into a contract that did not require the contractor to pay the prevailing wages as required by the Davis-Bacon Act. In anticipation of a potential Court directive that the contract be renegotiated for such payment, for which the WVDOH had committed to reimburse NCI, the Company recorded a $9,000 long-term liability for the potential obligations under the ruling and an offsetting $9,000 long-term receivable for the recovery of these costs from the WVDOH.

On September 30, 2009, the Court issued an order that dismissed or denied for lack of standing all of the plaintiff’s claims under federal law and remanded the remaining state claims to circuit court in Kanawha County, WV for resolution. The Court also vacated portions of its September 2007 order, and held that the plaintiff lacked standing to pursue the Davis-Bacon Act claim and further concluded that no private right of action exists to challenge the absence of a provision in a contract for highway construction requiring payment of prevailing wages established by the Davis-Bacon Act. As a result of the September 30, 2009 ruling, the Company’s previously established long-term liability and offsetting long-term receivable of $9,000 have been reversed.

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NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, dollars in thousands)

(Continued)

(14) Comprehensive Income

Total comprehensive income is as follows for the three months ended March 31, 2010 and 2009:

	Three Months Ended
	March 31,
	2010			2009
Net income	$	14,041		$	40,964
Change in fair value of cash flow hedge related to interest rate swaps, net of tax effect of $0 and ($8) for the three months ended March 31, 2010 and 2009, respectively		-			24
Adjustments to unrecognized losses and amortization of employee benefit costs, net of tax effect of $2,319 and ($153) for the three months ended March 31, 2010 and 2009, respectively		(3,696	)		462
Change in fair value of cash flow hedges, net of tax effect of ($1,564) and ($2) for the three months ended March 31, 2010 and 2009, respectively		2,520			6
Change in fair value of available-for-sale marketable securities, net of income tax of ($103) and $0 for the three months ended March 31, 2010 and 2009, respectively		163			-
Total comprehensive income	$	13,028		$	41,456

The following table summarizes the components of accumulated other comprehensive income at March 31, 2010 and December 31, 2009:

	March 31,			December 31,
	2010			2009
Adjustments to unrecognized gains and losses and amortization of employee benefit costs, net of taxes of ($3,783) and ($6,102) as of March 31, 2010 and December 31, 2009, respectively		1,437			5,133
Unrealized losses on cash flow hedges, net of taxes of ($2,116) and ($552) as of March 31, 2010 and December 31, 2009, respectively		3,419			899
Change in fair value of available-for-sale marketable securities, net of income tax benefit of $37 and $140 as of March 31, 2010 and December 31, 2009, respectively		(57	)		(220	)
Total accumulated other comprehensive income	$	4,799		$	5,812

(15) Segment Information

The Company discloses information about operating segments using the management approach, where segments are determined and reported based on the way that management organizes the enterprise for making operating decisions and assessing performance. The Company periodically evaluates its application of accounting guidance for reporting its segments.

The Company extracts, processes and markets steam and metallurgical coal from surface and deep mines for sale to electric utilities, steel and coke producers, and industrial customers. The Company operates only in the United States with mines in Central Appalachia, Northern Appalachia, and the Powder River Basin. Prior to the Merger, Old Alpha had only one reportable segment, Coal Operations, which included operations in Central and Northern Appalachia. As a result of the Merger, the Company changed its organizational structure and re-evaluated its reportable segments. Based on a review of the required economic characteristics, the Company aggregated its operating segments into two reportable segments: Western Coal Operations, which consists of two Powder River Basin surface mines as of March 31, 2010 and Eastern Coal Operations, which consists of 38 underground mines and 22 surface mines in Central and Northern Appalachia as of March 31, 2010, as well as the Company’s road construction business which operates in Central Appalachia and its coal brokerage activities.

In addition to the two reportable segments, the All Other category includes an idled underground mine in Illinois; expenses associated with closed mines; Dry Systems Technologies; revenues and royalties from the sale of coalbed methane and natural gas extraction; equipment sales and repair operations; terminal services; general corporate overhead and corporate assets and liabilities. The Company evaluates the performance of its segments based on EBITDA from continuing operations, which the Company defines as Income from continuing operations plus Interest expense , Income tax expense , Amortization of acquired coal supply agreements, net and Depreciation, depletion and amortization , less Interest income and Income tax benefit . All prior period segment information has been reclassified to conform to the current presentation.

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NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, dollars in thousands)

(Continued)

Segment operating results and capital expenditures from continuing operations for the three months ended March 31, 2010 and total assets as of December 31, 2009 were as follows:

	Eastern		Western
	Coal		Coal		All
	Operations		Operations		Other			Consolidated
Total Revenues	$	777,009	$	134,091	$	10,904		$	922,004
Amortization of acquired coal supply agreements, net	$	44,137	$	21,820	$	-		$	65,957
Depreciation, depletion, and amortization	$	76,871	$	14,854	$	3,402		$	95,127
EBITDA from continuing operations	$	209,469	$	20,727	$	(11,724	)	$	218,472
Capital expenditures	$	49,801	$	5,950	$	5,128		$	60,879
Goodwill	$	304,900	$	47,681	$	5,287		$	357,868
Total assets	$	3,654,956	$	716,454	$	751,361		$	5,122,771

The following table presents a reconciliation of EBITDA from continuing operations to Income from continuing operations for the three months ended March 31, 2010:

	Eastern			Western
	Coal			Coal			All
	Operations			Operations			Other			Consolidated
EBITDA from continuing operations	$	209,469		$	20,727		$	(11,724	)	$	218,472
Interest expense		(11,677	)		(941	)		(9,502	)		(22,120	)
Interest income		(1,862	)		17			2,525			680
Income tax benefit (expense)		-			-			(21,278	)		(21,278	)
Depreciation, depletion and amortization		(76,871	)		(14,854	)		(3,402	)		(95,127	)
Amortization of acquired coal supply agreements, net		(44,137	)		(21,820	)		-			(65,957	)
Income from continuing operations	$	74,922		$	(16,871	)	$	(43,381	)	$	14,670

Segment operating results and capital expenditures from continuing operations for the three months ended March 31, 2009, and total assets as of December 31, 2009 were as follows:

	Eastern		Western
	Coal		Coal		All
	Operations		Operations		Other		Consolidated
Total Revenues	$	479,875	$	-	$	6,084	$	485,959
Depreciation, depletion, and amortization	$	39,527	$	-	$	678	$	40,205
EBITDA from continuing operations	$	100,847	$	-	$	8,834	$	109,681
Capital expenditures	$	17,133	$	-	$	1,003	$	18,136
Goodwill	$	304,900	$	47,681	$	5,287	$	357,868
Total assets	$	3,654,956	$	716,454	$	751,361	$	5,122,771

The following table presents a reconciliation of EBITDA from continuing operations to Income from continuing operations for the three months ended March 31, 2009:

	Eastern			Western
	Coal			Coal		All
	Operations			Operations		Other			Consolidated
EBITDA from continuing operations	$	100,847		$	-	$	8,834		$	109,681
Interest expense		(21	)		-		(9,832	)		(9,853	)
Interest income		(126	)		-		751			625
Income tax benefit (expense)		-			-		(13,627	)		(13,627	)
Depreciation, depletion and amortization		(39,527	)		-		(678	)		(40,205	)
Income from continuing operations	$	61,173		$	-	$	(14,552	)	$	46,621

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ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, dollars in thousands)

(Continued)

The Company markets produced, processed, and purchased coal to customers in the United States and in international markets. Export revenues totaled $254,846 or approximately 28% of total coal and freight revenues for the three months ended March 31, 2010. Export revenues totaled $195,097 or approximately 41% of total coal and freight revenues for the three months ended March 31, 2009.

(16) Discontinued Operations

Kingwood Mining Company, LLC

On December 3, 2008, the Company announced the permanent closure of Kingwood. The decision was a result of adverse geologic conditions and regulatory requirements that rendered the coal seam unmineable at this location. The mine stopped producing coal in early January 2009 and Kingwood ceased equipment recovery operations at the end of April 2009. Beginning in the first quarter of 2009, the results of operations for the current and prior periods have been reported as discontinued operations.

The following table reflects the activities for Kingwood’s discontinued operations for the three months ended March 31, 2010 and 2009:

	Three Months Ended
	March 31,
	2010			2009
Total revenues	$	-		$	2,907
Costs and expenses		(1,047	)		(10,158	)
Loss from operations		(1,047	)		(7,251	)
Income tax benefit from discontinued operations		418			1,594
Loss from discontinued operations	$	(629	)	$	(5,657	)

The assets and liabilities of Kingwood Mining Company, LLC as of March 31, 2010 and December 31, 2009 are shown below:

	March 31,			December 31,
	2010			2009
Current assets	$	-		$	-
Property, plant, and equipment, net		1,156			1,636
Other assets		440			442
Total assets of discontinued operations		1,596			2,078

Current liabilities		3,589			4,830
Noncurrent liabilities		10,996			10,166
Total liabilities of discontinued operations		14,585			14,996

Net liability	$	(12,989	)	$	(12,918	)

(17) Mergers and Acquisitions

Merger with Foundation Coal Holdings, Inc.

On May 11, 2009, Old Alpha and Foundation executed an agreement and plan of merger pursuant to which Old Alpha was to be merged with and into Foundation, with Foundation continuing as the surviving corporation of the Merger. On July 31, 2009, the Merger was completed and Foundation was renamed Alpha Natural Resources, Inc.

The fair value of common stock issued was determined by the closing price of Old Alpha’s common stock on the day of the Merger. The total purchase price has been preliminarily allocated to the net tangible and intangible assets of Foundation. The allocation of the purchase price has not been finalized due to the final calculation of deferred taxes, therefore, the amounts that have been recorded are provisional and will remain as such until a final tax return is filed for Foundation, which is anticipated to occur by the end of the second quarter of 2010.

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ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, dollars in thousands)

(Continued)

The following unaudited pro forma information has been prepared for illustrative purposes only and assumes the Merger occurred at the beginning of the period being presented. The unaudited pro forma results have been prepared based on estimates and assumptions, which the Company believes are reasonable; however, they are not necessarily indicative of the consolidated results of operations had the Merger occurred at the beginning of the period presented, or of future results of operations.

The unaudited pro forma results for the three months ended March 31, 2009 are as follows:

	Three Months Ended March 31, 2009
Total revenues
As reported	$	485,959
Pro forma	$	880,511

Income (loss) from continuing operations
As reported	$	46,621
Pro forma	$	(11,954	)

Earnings per share from continuing operations-basic
As reported	$	0.67
Pro forma	$	(0.10	)

Earnings per share from continuing operations-diluted
As reported	$	0.66
Pro forma	$	(0.10	)

(18) Supplemental Guarantor and Non-Guarantor Financial Information

On July 30, 2004, Foundation’s subsidiary, Foundation PA (the “2014 Notes Issuer”), issued the 2014 Notes. The 2014 Notes were guaranteed on a senior unsecured basis by Foundation Coal Corporation (“FCC”), an indirect parent of Foundation PA, and certain of its subsidiaries. As a result of the Merger, Foundation PA and FCC became subsidiaries of the Company.

On August 1, 2009, in connection with the Merger, Foundation PA, the Company and certain of its subsidiaries (which were also former subsidiaries of Old Alpha) (the “New Subsidiaries”) executed a supplemental indenture (the “Third Supplemental Indenture”), which supplements the indenture dated as of July 30, 2004 as supplemented, governing the 2014 Notes.

Pursuant to the Third Supplemental Indenture, the Company assumed the obligations of FCC in respect of the 2014 Notes and, along with the New Subsidiaries, became obligated as guarantors on the indenture governing the 2014 Notes. On August 1, 2009, in connection with the Merger, FCC merged with and into the Company. In accordance with the indenture governing the 2014 Notes, the “Guarantor Subsidiaries” under the 2014 Notes, referred to as the “2014 Notes Guarantor Subsidiaries,” are each of the direct and indirect wholly owned subsidiaries of the Company, other than the Issuer Subsidiary and the Non-Guarantor Subsidiary. The Company and the 2014 Notes Guarantor Subsidiaries have fully and unconditionally guaranteed the 2014 Notes, jointly and severally, on a senior unsecured basis.

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ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, dollars in thousands)

(Continued)

Presented below are condensed consolidating financial statements as of March 31, 2010 and December 31, 2009 and for the three months ended March 31, 2010 and 2009, based on the guarantor structure that was in place at March 31, 2010. As the Merger was treated as a “reverse acquisition” and Old Alpha was treated as the accounting acquirer, Old Alpha’s historical financial statements are the historical financial statements of the Company for comparative purposes. As a result, “Parent” in the tables below refers to Old Alpha in reference to dates prior to the Merger and to the Company in reference to dates following the Merger, and refers to the Company as a guarantor of the 2014 Notes; information is presented for “2014 Notes Issuer” only for dates following the Merger because the 2014 Notes Issuer was a subsidiary of Foundation prior to the Merger; and information for “2014 Notes Guarantor Subsidiaries” prior to the Merger includes only those 2014 Notes Guarantor Subsidiaries that were subsidiaries of Old Alpha prior to the Merger. "Non-Guarantor Subsidiary" refers, for the tables below dated as of and for the periods ended March 31, 2010, to ANR Receivables Funding LLC, a wholly-owned indirect subsidiary of the Company formed on March 25, 2009 in connection with the A/R Facility, that was not and is not a guarantor of the 2014 Notes. Separate consolidated financial statements and other disclosures concerning the 2014 Notes Guarantor Subsidiaries are not presented because management believes that such information is not material to holders of the 2014 Notes or related guarantees.

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ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, dollars in thousands)

(Continued)

Alpha Natural Resources, Inc. and Subsidiaries

Supplemental Condensed Consolidating Balance Sheet

March 31, 2010

			2014 Notes		2014 Notes Guarantor		Non-Guarantor					Total
	Parent		Issuer		Subsidiaries		Subsidiary		Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	64,045	$	-	$	429,790	$	-	$	-		$	493,835
Trade accounts receivable, net		-		-		18,600		288,781		-			307,381
Inventories, net		-		-		206,604		-		-			206,604
Prepaid expenses and other current assets		-		-		194,034		35		-			194,069
Total current assets		64,045		-		849,028		288,816		-			1,201,889

Property, equipment and mine development costs, net		-		-		1,077,198		-		-			1,077,198
Owned and leased mineral rights, net		-		-		1,955,790		-		-			1,955,790
Owned lands		-		-		92,132		-		-			92,132
Goodwill		-		-		357,868		-		-			357,868
Acquired coal supply agreements, net		-		-		328,700		-		-			328,700
Other non-current assets		4,694,356		1,655,175		3,121,623		55,256		(9,379,090	)		147,320
Total assets	$	4,758,401	$	1,655,175	$	7,782,339	$	344,072	$	(9,379,090	)	$	5,160,897

Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt	$	-	$	33,500	$	-	$	-	$	-		$	33,500
Trade accounts payable		1,623		3		149,595		15		-			151,236
Accrued expenses and other current liabilities		3,130		5,206		238,230		66		-			246,632
Total current liabilities		4,753		38,709		387,825		81		-			431,368

Long-term debt		213,387		538,250		-		-		-			751,637
Pension and postretirement medical benefit obligations		-		-		690,159		-		-			690,159
Asset retirement obligations		-		-		194,835		-